Here at Fusion Business Services, we get many questions about VAT registration for limited companies. As part of our service, you can choose to receive help registering your limited company for VAT, so we’re happy to advise on the VAT registration threshold, what VAT taxable turnover is, and how to register for VAT.
Please be aware that all limited company directors must report VAT according to Making Tax Digital regulations.
What does it mean to be VAT registered?
Let’s begin with VAT basics and what being VAT registered means.
VAT – or Value Added Tax – is currently set at 20% in the UK for most good and service. However, please be aware there are some exceptions to the rules. More information about VAT rates is available on the government’s website. VAT is added to most products and services sold in the UK, excluding those that are zero-rated or exempt such as newspapers, books, certain nursing services and rent.
With regards to your limited company as a contractor, if you undergo VAT registration, you will need to add VAT to invoices you raise going forward. You will also add VAT if the place of supply is in the UK and the services provided are not exempt from VAT. This includes the services your company provides if turnover goes over the annual VAT threshold.
If your company is VAT registered you can claim back the VAT on some of your VAT taxable business expenses – as long as you have a valid receipt.
When a company registers for VAT, the director is required to submit quarterly VAT Returns using Making Tax Digital-compatible software – or via an accountant who complies with MTD. This includes quarterly VAT payments due to HMRC.
Find out more about our limited company accountancy packages, which come with full VAT support if required, by requesting a free consultation. It’s quick, and there’s no obligation.
The VAT registration threshold
A company can voluntarily register for VAT if it suits the business financially, or if it’s believed there could be a benefit from reclaiming VAT on expenses. However, there is a VAT threshold – a point at which a business must register for VAT.
A limited company must register for VAT when its VAT taxable turnover is more than £85,000 in a 12-month period. You can register your limited company for VAT at any point if you expect your annual turnover to reach the £85,000 threshold.
You must register your company for VAT when:
- You expect the VAT taxable turnover of the business to be more than £85,000 in the next 30 days
- Your business had VAT taxable turnover of over £85,000 over the last 12 months
Source: Gov.uk
If your business’ VAT taxable turnover is normally under the £85,000 VAT threshold and you do not wish to be registered, you can request an exception if it goes over the threshold temporarily.
What is ‘VAT taxable turnover’?
Your company’s VAT taxable turnover is the total value of everything you sell – including services – that is within the scope of UK VAT (and not exempt).
The VAT taxable turnover does not apply to a fixed period such as the tax year or the calendar year but can be for any period. For example, you could look at the turnover from the start of September to the end of August the following year.
Once your company’s VAT taxable turnover exceeds £85,000 (the VAT threshold) in a period of 12 months, you must register your company for VAT.
How to register for VAT
You can register your company for VAT online, and if you have a contractor accountant they can help. They can then submit your VAT returns to HMRC on your behalf. However, you’ll still need to get a VAT number and sign up for a VAT online account (using your Government Gateway ID). Find out how to create a Government Gateway account.
You can register by post using VAT registration form ‘VAT1’ if you meet HMRC’s criteria.
You can charge VAT on your services from the effective date of registration, providing that the place of supply is in the UK and there is no VAT exemption.
VAT certificate
A VAT certificate is a document that HMRC provides to confirm that your business is officially registered for VAT.
A VAT certificate includes:
- Your business’s unique VAT number
- The effective date of registration (the date from which VAT needs to be charged on VATable sales)
- Details of when to submit your business’s first VAT return and payment
Your business will need to display its VAT number on any invoices where VAT is being charged, so that your customers can see that your business is an official collector of VAT and is registered with HMRC.
If you can’t find your VAT certificate, don’t worry. Whether you’ve misplaced your original certificate or just want to check that the details you have are correct, you can easily access your VAT certificate online and save or print a copy.
1. Log in to Government Gateway
You’ll need the username and password you created when setting up your Government Gateway account.
2. Select ‘View your VAT account’
You’ll see this on the first page of the Government Gateway after login.
3. Select ‘View VAT certificate’
You’ll then see your VAT details displayed, and you can select ‘Print certificate’ to print a copy or download it as a PDF file.
Responsibilities of being VAT registered
As a VAT-registered business you must:
- Include VAT in the price of all goods and services at the correct rate
- Keep records of how much VAT you pay for things you buy for your business
- Account for VAT on any goods you import into the UK
- Report the amount of VAT you charged your customers and the amount of VAT you paid to other businesses via your VAT return
- Pay any VAT you owe to HMRC
The VAT you pay is usually the difference between any VAT you’ve paid to other businesses, and the VAT you’ve charged your customers.
If you’ve charged more VAT than you’ve paid, you must pay the difference to HMRC.
If you’ve paid more VAT than you’ve charged, HMRC will usually repay you the difference.
VAT registration service
You can get comfortable with your own limited company administration by registering for VAT yourself, but if you prefer the hands-off approach, you can appoint your accountant (i.e Fusion Business Services) as an agent to do this for you.
Contact us for more information on VAT registration service and how you can register for VAT, either voluntarily or as a legal requirement.
What are the benefits of being VAT registered?
You also can reclaim VAT on certain expenses for your business as a contractor (for example on recharged expenses), providing you have a valid VAT receipt. Keep copies of all receipts that relate to business expenses for at least six years, and if you are reclaiming VAT on goods purchased then the goods must still be under the business ownership. You can claim back VAT on goods purchased up to four years prior to registration; for services, this time limit is six months.
VAT registration is something many of our clients choose to do. As contractors, it gives them a more professional and credible appearance. It is also very useful for claiming back VAT on business expenses.
A further benefit of registering a limited company for VAT is the ability to apply to join the VAT Flat Rate Scheme (FRS). This scheme allows you to fix the rate at which you pay VAT at a lower amount than what you charge. So you would charge 20% VAT on your services to your end client, but you would pay VAT at a lower fixed percentage of the gross amount charged to your client.
If the VAT Flat Rate Scheme suits your circumstances, it could allow you to further maximise your pay in combination with the major benefits of having a limited company. The FRS may be right for you if you are not a limited cost business, i.e. the goods you purchase for your business are either 2% of your turnover or £1,000 per year if over 2%.
With that said, it is important to note that VAT Flat Rate Scheme takes into account the reclaiming of VAT on expenses; therefore, if you choose to be FRS registered you will not be able to reclaim VAT on any expenses with the exception of Capital Expenditure over £2,000.
The VAT reverse charge
HMRC introduced the domestic reverse charge on the 1st March 2021 and it applies to specific building and construction services. The reverse charge will mean that for every transaction the VAT will need to be registered and clearly stated on the invoice as a reverse charge. The recipient of the supplies will now be responsible for charging and accounting for the VAT, rather than the supplier. It’s designed to stop fraud from companies who charge VAT to others but never pass it on to HMRC.
How we can help you
When you use Fusion Business Services as your contractor accountant, you benefit from our extensive knowledge of tax and the contractor market. Our dedicated team can provide advice and support on various matters – from VAT to Personal Tax Returns and more. When using our service, you can benefit from:
- Service from expert accountants with vast contractor accountancy expertise
- Payroll, bookkeeping, invoicing, back office support and administration
- In-depth knowledge of the contractor market
- Personal Tax – free advice on tax planning
- Assistance with the completion and submission of quarterly VAT Returns
- Liaising with HMRC
- Processed expenses and full administrative support
- Secure and mobile-friendly Client Web Portal for submitting expenses claims and timesheets
- And more!
If you are looking for a payroll service for your contractor career, then our service will provide you with a dedicated Account Manager who will help you complete all the necessary administration involved in operating a limited company.
Contact us for a free and impartial consultation
To find out more about our services or to benefit from a free and impartial consultation, please give our expert team a call on 0800 2294020. Alternatively, you can schedule a free consultation, and we will gladly call you back at a time to suit you.
